PENSION PROBLEMS CAN BE REMEDIED BY PRODUCTIVITY GROWTH

February 3, 2005

Demographic trends will put increasing pressure on workers to support a growing elderly population, but the financial crunch could be solved through continued productivity growth, writes Michael J. Mandel of BusinessWeek magazine.

By 2050, technological and economic trends will likely double average living standards in most industrialized countries:

Since 1980, productivity growth in Japan has averaged 2 percent annually; at that pace, output per worker will rise 169 percent by 2050 and Japan's gross domestic product (GDP) will grow 72 percent.

If the United States and Britain can keep up their historical productivity-growth rates (about 1.8 percent per year), their living standards will double by 2050.

France will have to increase its historical productivity growth from 1.5 percent to 1.8 percent in order to double national living standards; Germany would have to increase its productivity growth by 0.5 percentage points for a like outcome.

Consequently, some reforms of state-run pension systems will need to be made, but this task may be less difficult than expected -- even for the most demographically-challenged nations such as Japan and Germany, says Mandel.

Source: Michael J. Mandel, "Productivity Can Make Up the Gap," BusinessWeek, January 31, 2005.